How Unemployment Impacts Businesses

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Currently, we witness various social and political events like COVID-19 and protests like the Black Lives Matter movement that clearly impacts our economies and the way businesses operate. According to McKinsey & Company, the firm that is a counselor to many of the world's most influential businesses and institutions, the impact of COVID-19 in a city like New York has been six times greater than the impact of September 11th. Thus, it is undeniable that all these events impact businesses and the economy significantly. One particularly pressing result of these events is the current mass unemployment, which brings along the question of how unemployment may affect businesses within the next few years.

It is clear that when the unemployment rate is high, many businesses will have trouble staying open and will eventually have to pay their employees lower wages. The hiring process has also had enormous difficulties – according to a 2021 Q3 CNBC Small Business Survey, 50% of the small business owners state that it has "gotten harder to find qualified people to hire compared to a year ago." Although most businesses have been impacted by the high unemployment rate, small businesses in particular suffer significantly harsher consequences. Even if there are various job openings, many small businesses don't have the necessary resources to compete for applicants with other large companies. Not only will these businesses have less labor, but fewer customers as well. When there is a high unemployment rate, customers are more likely to spend less on the service, which can deeply hurt the opportunity for many businesses to grow. Many people will not have the same purchasing power as two years ago. At the onset, monthly spending drops by 6%, and spending declines by 1% (Harvard Scholar).

Though high unemployment rates are survivable, many small businesses and employees will have a hard time staying afloat, especially when compared to larger competitors. Some solutions to the unemployment problem in the past have been the implementation of fiscal policies to uplift businesses and employees during high unemployment rates in countries such as the United States with stimulus packages. However, while high unemployment rates have their massive downsides, it does help contribute to the economy in its own way. According to the World of Labor, "unemployment benefit programs play an essential role in the economy by protecting workers' incomes after layoffs and encouraging them to continue finding jobs." While daily social and political events happen in society, it's essential to observe how specific changes in the economy can affect large and small businesses.